Icahn Sells Lionsgate Stake, Ends Feud

9/05/2011 12:01 AM Eastern

By: By Mike Farrell

Activist investor Carl Icahn ended histhree-year feud with Lionsgate last week, moving to sellhis entire stake in the movie studio and production giantand drop all outstanding litigation against the companyfor about $309 million.

Based in Santa Monica, Calif., and Vancouver, B.C., Lionsgateis known for its box-office hits, such as the Sawhorror-film franchise, as well as for producing cable stalwartssuch as Mad Men, Weeds and Nurse Jackie.

Icahn, who made his fortune buying stock and debt fromtroubled companies, first began acquiring large blocks ofLionsgate in 2008, eventually growing that stake to about44.2 million, or 33.2% of outstanding shares. Along the way,Icahn has shad an ongoing feud with Lionsgate management,criticizing them for failed box-office ventures, callingLionsgate’s 2009 purchase of TV GuideNetwork a mistake and attempting tomerge the studio with his interests in rivalMetro-Goldwyn-Mayer.

Lionsgate said Icahn and his sonBrett Icahn have agreed to sell substantiallyall of their shares in the studio ina series of transactions. In addition, theparties agreed to dismiss all outstandinglitigation between them and releaseall claims they may potentially haveagainst each other.

Under terms of the agreement, Icahnwill sell his shares in three separatetransactions — in the first pair, 11 millionshares, at $7, to an affiliated companyof Lionsgate; and 11 million shares toaffiliates of MHRFund Management,controlledby former Icahnprotégé andcurrent Lionsgate director MarkRachesky, both to be completed bySept. 2. Th e remaining 22.1 millionshares will be sold over the next 35days to one or more parties designatedby Lionsgate.

Although the price of $7 per sharerepresents about a 7% discount to Lionsgate’s closing stockprice of $7.52 per share on Aug. 30, analysts believe that thesale is an efficient way for the studio to remove an overhangfrom the stock.

It gives Icahn a reasonable exit path —the price is about equal to his cost basisfor the shares — and could help financehis next project, the $10 billion takeover ofhousehold-products giant Clorox.

“As some have noted, my own ‘slate’is pretty full at the time, and I thereforedetermined that it is a good time to exit,”Icahn said in a statement.

Miller Tabak media analyst DavidJoyce called the deal an efficient exitfor Icahn and a way for institutional investorsto take block positions in thecompany without disrupting the shareprice.

“With the Icahn issues behind it, investorsshould refocus on the fundamentals,”Joyce wrote in a researchnote. Lionsgate management alsoseemed relieved to be able to remove the Icahn albatrossfrom its neck, in a way that won’t dilute the stock.

“We believe that this accretive and antidilutive transactionis in the best interest of all Lionsgate shareholders, andit allows the company to continue to focus on the executionof its long-term business plan,” Lionsgate co-chairman andCEO Jon Feltheimer said in a statement.

EXITING THE LIONS’ DEN

Carl Icahn has agreed to sell his stake in movie studio and production house Lionsgate in a three-pronged deal:

Icahn agrees to sell 11,040,493 shares of Lionsgate common stock to a Lionsgate company for $7 per share.

Proceeds: $77,283,451

One or more affiliates of MHR Fund Management LLC agrees to buy 11,040,493 shares of Lionsgatestock from Icahn for $7 per share.Proceeds: $77,283,451

Over the next 35 business days, Lionsgate has the right to designate one or more parties to purchaseup to 22,080,985 shares of Lionsgate stock from Icahn at $7 each. Proceeds: $154,566,895